Powderfinger reunited in late 2006, after a three-year hiatus, to write songs for Dream Days at the Hotel Existence, which was recorded in Los Angeles, California, in early 2007 by producer Rob Schnapf.

Three further singles were released; "I Don't Remember", "Nobody Sees", and "Who Really Cares (Featuring the Sound of Insanity)", though they failed to equal "Lost and Running"'s chart performance.

The album encountered controversy relating to the song "Black Tears" with claims that it may have influenced the Palm Island death in custody trial.

[4] After a month of recording, on 2 March 2007, Fanning made an announcement on Australian radio station Triple J that tracking was complete, mixing the album was to follow, and the approximate release date was June.

[7] Following their hiatus, which commenced after the release of Fingerprints: The Best of Powderfinger, 1994-2000, the band reconvened in late 2006 to write songs for Dream Days at the Hotel Existence.

Dream Days at the Hotel Existence was recorded at Sunset Sound Studio, Los Angeles, California, in early 2007 by producer Rob Schnapf, best known for his work with Beck and The Vines.

As the style of writing differed, the band identified the need for piano performances in many of their songs, enlisting veteran pianist Benmont Tench to play parts throughout.

[19] The first single from Dream Days at the Hotel Existence was "Lost and Running" and the video clip, which was directed by Damon Escott and Stephen Lance of Head Pictures, began showing in Australia on 21 April 2007.

[24] Sydney Morning Herald commentator Bernard Zuel described Dream Days at the Hotel Existence as Powderfinger's first dull album, noting that on numerous songs "It promises to become exciting but never quite gets there."

The review, which gave the album three and a half stars, commented that it seemed the band were trying to move towards the bluegrass genre, and "edging their way into the adult-contemporary section" of a music store, something they had not shown on their previous works.

He said the album contained "all the trademarks of classic Powderfinger", praising Fanning's vocals, Middleton and Haug's "twin-guitar attack", Collins' basslines and Coghill's "powerhouse drum work".

While praising "I Don't Remember" as an excellent anthem, and "Surviving" for containing "a sonic blast of rock", he was critical of "Lost and Running", which he said felt "tired and sluggish", while "Ballad of a Dead Man" was described as "tedious".

On 2 May 2007, "Black Tears", the ninth song on Dream Days at the Hotel Existence, sparked controversy after claims that its lyrics could invoke prejudice in the Palm Island death in custody trial.

[42] Lawyers for the accused, Senior Sergeant Chris Hurley, lodged a complaint to the Queensland Attorney-General relating to the lyrics of the song.

[44][45] Bernard Fanning made a media statement in response to the complaint, stating that the band had never intended for the song to contain "even the slightest suggestion of any prejudice".

His performances were welcomed by critics and audiences, with AdelaideNow commenting that "local ring-in Lachlan Doley added shimmering keys to the band's richly textured sound".